Foreign investors scared off by Turkey’s measures to buoy lira - Reuters

The Turkish government’s response to a currency crisis that knocked nearly 30 percent off the lira’s value against the dollar in 2018 has driven foreign investment away from the country, endangering its recovery plans, Reuters said in an analysis published Wednesday.

Concerns about Turkey’s tense relations with the United States and the politicisation of its central bank sparked a run in August 2018, when U.S. President Donald Trump targeted Turkey with sanctions over its imprisonment of an American pastor.

Turkish President Recep Tayyip Erdoğan and his Justice and Development Party (AKP) government since then have taken drastic measures to protect the lira, and some of these are driving away foreign investment, Reuters said.

These measures included directing its banks to withhold liquidity from the London swap market as the lira resumed its slide in March 2019, sending rates skyrocketing to 1,200 percent.

The move curbed the lira selloff, but sources told Reuters it had also left big European and U.S. banks scrambling to cover positions and sell off Turkish bonds.

The swap market move was one of dozens of new regulations designed to preserve the lira, and overseas investors are steering clear of Turkish bonds despite a strong rally last year, Reuters said.

Meanwhile, HSBC is considering selling its Turkish bank and Citigroup, one of the top foreign banks in the country, transferred two traders to London from Istanbul because of the uncertainty, said Reuters.

Another government initiative to boost lending by cutting the amount of interest Turkish savers received from current accounts prompted many to save instead in foreign currencies, according to bankers and central bank data.

State banks now employ a 24-hour “national team” tasked with responding to lira weakness by buying central bank foreign currency reserves and re-depositing as lira, officials and bankers told Reuters.

Despite these drastic measures, the lira slid a further 11 percent against the dollar last year.

Reuters quoted Uğraş Ülkü, a former Turkish Treasury researcher who now heads the Institute of International Finance’s regional Emerging Markets research, as saying that “tighter control on financial markets, risks including U.S. sanctions and Turkish borrowers’ inability to access foreign funding” mean the country may miss out on foreign cash.